A Venture Capitalist’s Take on Investing in Cannabis

June 1, 2017

12:20 pm

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The cannabis industry has been filled with innovation and investment in recent years. With multiple states legalizing recreational and medical use across the country, investors big and small are hungry to get a piece of the action. However, federal laws still remain staunchly opposed to legal cannabis and there are more than enough politicians looking to keep cannabis from making an appearance in the market.

So as an investor, what do you do? Do you play it safe and invest in industries with less baggage? Or do you take the risk and potentially hit it big before anyone else has jumped on board the cannabis train?

As a poker player turned venture capitalist, James Conlon, a partner at Bullpen Capitalknows a thing or two about risk. Take a look at our interview below and decide whether or not you want to invest in cannabis.

The Ground Floor

Despite most Americans being in favor of legal cannabis, capital is hard to come by for a lot of budding companies, as most VCs are still wary of the risks. But if you get in now, you’ll be getting in on the ground floor.

“As with any regulated market, investing in cannabis comes with unique risks, but the industry will produce some massive businesses in the next 5-10 years,” said Conlon in an interview with Tech.Co. “Since 95 percent of mainstream VCs won’t touch the category today, valuations are rational and you face little competition for access – so place your bets before the party gets crowded.”

The Unique Risks

Even with little competition and an unprecedented ROI opportunity, investing in cannabis has its risks. Before deciding on your particular strategy, make sure you are prepared to take on these challenges.

“Startups that touch the plant carry higher risk,” said Conlon. “For example, growers, edibles producers, and dispensaries all touch the plant. That doesn’t mean you can’t find good investments in these categories, but they will be subject to regulatory uncertainty around licensing, taxation, operating fees, tracking, compliance, banking, and so forth. If those risks are too high for your appetite, remember that startups in software, hardware, media, ecommerce, and financial tech will capture major segments of the cannabis market without ever touching the plant.”

The Legality

It’s no secret that investing in something that is technically illegal in the US is risky. With a single vote, your entire portfolio could go down the drain without a second thought. Fortunately, you can get some sleep knowing that the American people are on your side.

“About 60 percent of Americans now support legalizing cannabis,” said Conlon. “Despite some threats of increased federal enforcement, I think elected officials are smart enough not to push too hard against majority sentiment. Investors should just stay up-to-date and favor companies that put a premium on compliance.”

The Future

When deciding whether or not to invest in cannabis, it’s important to think about the future. Yes, the cannabis industry might hit a few bumps here and there, but it’s always going to be moving forward in the long run. And that’s worth investing in.

“Wide-spread legalization of medical and recreational cannabis is inevitable on our current trajectory. The market is estimated at $40B to $45B worth of retail demand plus opportunities in wellness, software, media, banking, pharmaceuticals, and so forth.”

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Conor is a writer, comedian and world-renowned sweetheart. As the Assistant Editor and Writer at Tech.Co, he’s written about everything from Kickstarter campaigns and budding startups to tech titans and innovative technologies. His background in stand-up comedy made him the perfect person to host Startup Night at SXSW and the Timmy Awards for Tech in Motion. In his spare time, he thinks about how to properly pronounce the word "colloquially."
Conor is the Assistant Editor and Writer at Tech.Co. You can email him at conor@tech.co.